Merck Serono Opens Israeli Drug Development Incubator

April 18--Close collaboration between Germany’s Merck
Serono SA and Israel’s life sciences industry is deepening.
Earlier this week, Merck Serono inaugurated its new drug
development incubator at Inter-Lab Incubator in Yavne. Merck Serono
invested €10 million in the project, an amount that nears the
investment by the government incubators program in drug development
companies. Inter-Lab has already picked three projects from the 130
applicants, and the incubator will probably have five or six
projects altogether.

Merck Serono will fully finance some of the companies, and will
finance others together with partners, such as venture capital
funds. Inter-Lab Incubator general manager Simone Botti previously
served as VP business development at Rad BioMed Incubator Ltd.

To mark the inauguration, Merck KGaA chairman Dr. Karl-Ludwig
Kley came to Israel. In the past few years, he has become one of
the most enthusiastic supporters of Israel’s pharmaceutical
industry in the world.

He has no Israeli or Jewish roots, but upon taking up his post,
he discovered that Merck’s collaboration with Israeli
companies had been important to the company over the years. These
include Serono’s multiple sclerosis drug Rebif, which was
jointly developed with the Weizmann Institute of Science; fertility
drug Gonal F, discovered at Tel Hashomer Medical Center; and
chemotherapy drug Erbitux, which the Weizmann Institute shared in
the discovery and which Merck Serono markets.

Kley was impressed by Israel’s capabilities and encourages
collaborations. These include a cooperation agreement through the
Ministry of Industry, Trade and Labor, ties with four universities,
the Inter-Lab R&D Center, and now the Inter-Lab incubator.

"The Israeli incubator is the first in the world for Merck,"
Kley told "Globes" in an interview. "It’s important to stress
that the incubator is not at the expense of other collaborations
that Merck has in the field -- acquisitions of companies,
acquisitions of stakes in companies via our venture capital fund,
and activities with universities."

Inter-Lab general manager Regine Shevach adds, "We bring to the
incubator companies experienced in drug discovery and development.
After two to three years, we’ll either acquire them in full,
or if they are interesting but not suitable for our portfolio, we
can release them to operate independently or collaborate with other
companies. We always try to keep freedom of action."

Kley says that Merck Serono is most interested in oncology,
fertility, multiple sclerosis, and endocrinology, but adds, "The
incubator is intended for seed-stage investments, and it will not
invest in companies with just one product or molecule, but in
companies with a technology platform suited for future developments
for a range of diseases. Unless there is a company with a single
really amazing product."

No dramatic changes in the industry

Shevach says, "We now know that, without the combination of
advanced calculation methods in pharmaceuticals, it will be hard to
make progress. This will therefore be one of the incubator’s
focuses."

"Globes": How does the incubator fit in with Merck’s
general strategy for innovation during such a stormy time in the
pharmaceutical industry?

Kley: "When I joined the industry in the 1980s, I was told that
there was a patent cliff and few blockbuster drugs. Every
generation in every industry thinks that it is at the most critical
moment in that industry. In my view, the changes are not so
dramatic. Everything could have been predicted in the 1970s:
government pressure on drug prices; the expiration of patents. So
it’s true that there are no $4 billion drugs, but there are
$500 million drugs, and it’s possible to do business with
them, too. True, it’s necessary to show governments that
there is economic value in a product. Fine, we’ll change our
tests structure to show this as well."

Have the companies that have seen the writing on the wall really
succeeded in changing in time?

"It’s always hard to fix the roof when it’s sunny.
It’s very human to try and postpone the change."

So the big change in the business model is still ahead, as most
consultants reviewing the industry claim?

"The time has come to lower the hype on this point. There are
dramatic changes in the world. The patent cliff isn’t one of
them. The patent cliff is a snapshot of a company’s
situation. So long as there are patents, there will always be a
patent cliff, but there are still a lot of new diseases, as well as
old diseases that are making a comeback. There’s a great need
for innovation and humanity has a capacity to innovate. I am a
strong believer in it."

One of your products that most interests the Israeli market is
Rebif, a competitor of Teva’s Copaxone.

"Only in Israel am I asked these questions. The patent for the
current version of Rebif on the market only expires in 2022. I have
no interest whatsoever in the expiration of Copaxone’s
patent, because interferons, in which Rebif is the market leader,
have their own place in the treatment process of multiple
sclerosis. Our sales rose by 1 percent last year."

The multiple sclerosis market will be much more competitive

"It is not now possible to predict what will happen in the
multiple sclerosis market in 5-10 years. That strongly depends on
which drugs now in clinical trials will succeed in reaching the
market. All we know is that the field will be much more
competitive."

At the Inter-Lab Incubator inauguration, Kley said, "I regret
not visiting Israel as a young man or student, and that I have not
utilized all that this country has to offer. We’re not the
ones who will come and land here with a $300 million check for one
company. We’re building our presence in Israel gradually, in
a diversified way, step by step, and that is what makes us
special."

Published by Globes [online], Israel business news --
www.globes-online.com -- on April 18, 2012

The banking sector believes Israel Discount Bank’s (TASE:
DSCT) controlling shareholders -- the Bronfman family and Rubin
Schron -- will exploit the new regulations, as they have wanted to
sell their stakes for a long time.

Other bank controlling shareholders who may be required to sell
their shares under the new regulations are First International Bank
of Israel (TASE: FTIN) controlling shareholder Zadik Bino and
Mizrahi Tefahot Bank (TASE:MZTF) controlling shareholder Leora
Ofer. They may choose to do so, in order to meet with the
recommendations of the Committee on Concentration in the Economy,
which bans control of both substantial financial and non-financial
companies.

Supervisor of Banks David Zaken and Supervisor of Capital
Markets, Insurance and Savings Prof. Oded Sarig also published a
joint document setting out seven guiding principles for the
criteria and general terms for controlling shareholders and
applicants for a control permit at a bank, insurance company, or
financial institution. They are as follows:

--The minimum holding for control of a supervised company as a
function of the size of the bank or insurance company.

--Capping the difference between the equity interest of the
controlling shareholder in a supervised company and the controlling
stake in it.

--Rules and restrictions on corporations through which a
controlling shareholder may hold a supervised company, in order to
ensure stability in the chain of control.

--The shareholders’ equity threshold for an applicant for
a control permit, as a function of the size of the investment in a
supervised company.

--Restrictions on how the investment to acquire a bank or
insurance company is financed.

--A commitment by the members of the controlling core to inject
capital into the supervised company they control, under terms and
in amounts to be set by the relevant regulator.

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